The owners of the Heyfield Mill have told staff it will close in 18 months despite Premier Daniel Andrews vowing to keep the mill operational.

Australian Sustainable Hardwoods (ASH) says the business is not viable after the government refused to increase the companies timber supply.

Forty out of the 250 jobs will go by September, while the rest will be lost in stages depending on customer needs.

The company says it's planning to move its operations including equipment interstate.

Premier Daniel Andrews vowed to do whatever it takes to keep the mill open.

The Premier revealed that the company rejected the government's offer and vowed to buy the mill to operate it at a reduced capacity.

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Mr Andrews told Melbourne radio announcer Neil Mitchell, the government will ensure the mill remains open.

"I don't propose to have an argument on air," he said.

"If we can't find a commercial buyer, we will step in as a government then we will purchase the mill at a reasonable point."

But ASH director Clinton Tilley told Neil Mitchell the mill is not for sale, but may be relocated to another state.

"The Premier was advised last night of what we would be telling our staff today and has sought to use it to his advantage and get ahead of us in the media, which I find is a total lack of respect," he said.

"It's terribly disappointing to us that as Victorians that our own state isn't willing to work with us in an open and transparent manner."